Peter's Articles

Short Sales

A short sale is when the proceeds from the sale of a property are not enough or are "short" to pay off the mortgage. Two analyses of first quarter 2009 data (one by real estate site Zillow.com and one by Economy.com) suggest about 20% of all homeowners owe more on their property than the property is worth.

If you must sell your home and you are going to come up short at closing, you should reach out to your lender as soon as possible. Unfortunately many lenders are overloaded with short sales and foreclosures. A quick resolution is usually unlikely. However your real estate agent can help you negotiate with the Bank.

If you are an investor a short sale can be very profitable. However, you must realize that it can take an unusually long time to close the deal. If you are not in a hurry than make an offer and be patient. No today does not mean no tomorrow.

Internal Controls

At this week's business meeting I was discussing the importance of internal controls. Good business practices are key regardless of the industry you are in. It is important to get multiple quotes from vendors and make sure they are in writing. The quotes should state the scope of the work to be completed and should also tell you how long the quote is good for. The quote should also be signed. Also for anyone who provides labor you should get a copy of their insurance.

It's amazing how many companies and contractors will change their prices or say that the scope of the work is different than they thought and want to charge you more money.

It's important to make as much money as you can on every project. Poor or no internal controls will cost you money. I don't mind making a mistake once. There is no excuse for making the same mistake twice.

Get Your Quotes In Writing!

Identifying & Budgeting All of Your Costs

People are always telling me that they would love to do what I do. Buying and selling houses is a business. Like every business it is important to identify and budget all of your costs upfront so that you can make an offer that will yield you with your desired profit. The following costs should be considered in your budget:

1. Repairs- How much is it going to cost you to repair the house
2. Closing Costs- How much is it going to cost to close the loan.
3. Holding Costs- The amount to hold the property will include but not be limited to the following:
   1. real estate taxes
   2. utilities
   3. lawn maintenance
   4. cleaning services
4. Interest- The amount of interest to service the loan.
5. Sales Commission- The realtor's commission or other amount incurred to sell your property.

Builder's Risk Insurance

Builder's Risk Policy is designed to cover a dwelling while it is under construction from start until such time a CO is granted. The Builder's Risk is written on an"all risk" basis including theft, fixtures, machinery and equipment that are on the premises that are going to become part of the dwelling are included as covered property. The policy is written on completed value, so since the exposure increases from 0 to 100 percent of the values over the term of the policy, builder's risk rates are adjusted to reflect the average value exposed.

A dwelling fire policy does not normally provide theft coverage on a vacant building which the Builder's Risk policy does provide theft coverage. Setting a proper value is difficult under a dwelling fire policy while the Builder's Risk policy is written to cover the constantly changing values.

A Builder's Risk policy can also be written to cover just building improvements, alterations or repairs which eliminate the need to insure the value of the entire building, instead insuring the value of the additions or improvements.

A Builder's Risk policy is the proper way to insure structures when under construction whether it is new construction from the ground up or remodeling and additions.

203(K) Rehab Loans

A 203(K) rehab loan enables a homebuyer to finance both the purchase and rehab of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and is released as the rehab is completed.

As part of the 203(K) loan you can also finance the cost of energy efficient improvements. Basic guidelines in order to do this include the following:

1. The cost of energy saving improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.
2. One and two unit new or existing homes are eligible; condos are not.
3. The improvements financed may be up to 5% of property value or $4,000 whichever is greater. The total must fall within the FHA loan limit